Purchasing Development - Assignment Example

?Demonstrate an understanding of the key role of the purchasing system as an integrated part of the overall development of organizational strategy According to Jones (1997), purchasing systems refer to the procedures set to procure materials, services and supplies for use in an organization’s day to day use. It is necessary to choose a procurement system by design rather than going for a general all-purpose one. The problem with general or ready to made procurement systems is that they are a general fit and even though they might let’s say cater to about 90% of the procurement needs, still there remains a 10 % chance that some things might left behind by their usage. For instance, a general purpose purchasing system might procure materials the way we want it to but doesn’t give us a receipt of each individual transaction (assuming we need receipts for each and every transaction). Design systems on the other hand are specifically designed from business to business and provide all functionalities that are needed for a successful purchasing function. It is necessary that procurement systems be integrated in all processes and departments of an organization. This would save the organization a lot of time and money as whenever anyone would require something, all he needs to do is send a procurement request to the purchasing department rather than waiting for the purchasing department to figure out for itself when inventory count goes down and wait for them to reorder. Sometimes there might be commercial issues arising as a result of change in organizational business plans. For instance our organization might aim to cut down on its costs as a way to maximize profits. It might plan to do so by purchasing raw materials and other supplies at a lower cost than usual. The procurement system here would need to consider whether switching suppliers to one offering a lower cost would still mean that the supplies are of the same quality. It would also need to consider whether the supplier would be able to deliver on time and not back out at the very last moment and leave us doomed. Such decisions need to be taken by the procurement department bearing the risk that a risk that a new supplier might default at any time! James (2009) in his book Buying Complex Systems stresses how it is very necessary to properly define the objectives of the purchasing operations and make sure they support the strategic objectives of the company as a whole. For instance if an organization aims to differentiate its product by offering high quality products and on the other hand the purchasing operation aims to save on money and therefore purchases low quality raw material then then definitely the overall aim of delivering high quality products won’t be met. The objectives of the purchasing operations need to be in line with the organization’s strategy if the organization wants to prosper. Evaluate the current and future effectiveness of an identified purchasing operational system I’m going to discuss the purchase operational system of the Agha’s Supermarket. The mart is located in the posh locality of Clifton and caters to thousands of people on a daily basis. The store is divided into many sections like crockery and cutlery, food items, vegetables etc. The purchase manager is responsible for making purchases on an overall basis. The purchase manager has a team of people, each of whom is sent out by him to different sections of the market to see the stock requirements. The team surveys the section heads every second day and pens down the stock requirement on a piece of paper. The entire team meets the purchase operations manager the next and report to him about the stock requirement. The purchasing manager then places purchase orders and goods are obtained by the company the very next day. The current system isn’t ideal enough to deal with unexpected demand fluctuations. Miscalculations might be made by section heads while ordering stock and in the meanwhile stock outs may be experienced leading to nil sales and loss of valuable market reputation. The current purchase system hasn’t even taken care of supply backups in case the default supplier fails to deliver on time. As the store sales continue to grow on a daily basis, backup suppliers might need to be found to make sure the purchase operational system even remains effective in the future as well. However, the current purchasing system does face a major threat at the hand of technological advancement. Currently, it might take a substantive amount of time from the time the goods are ordered to when they arrive at the store. Stock may run out in the meanwhile and store reputation may be tarnished. Newer automated systems are now available in the market, which are used by our competitors, which keep track of inventory every hour and generate and automated purchase orders whenever stock runs low to make sure there isn’t a time when stock outs are experienced. Such systems are computer automated and cost higher than the current systems. Agha’s needs to invest in such technology it plans to successfully thrive in the future. Such systems however are very efficient and effective. When the entire stock reporting procedure would be automated and orders are placed automatically, then less labor would be needed to survey the section heads and hence more cost could be saved. Propose viable changes to a purchasing system to secure increased effectiveness The current purchasing system needs to be changed if the supermarket wants to thrive competitively in this era of cut throat business. Currently it takes a significant amount of time form the moment a section manager orders good to the time he finally gets it. Automating the entire system would be a much better option. To start off, each section would need to maintain electronic records of its inventory. Each section head would also need to key in the minimum inventory level, a level when the computer would automatically re-order inventory to bring up the stock levels. Every time when an item is sold, the automated purchasing system would see if the stock level has gone down to the reorder level. The moment the reorder level is reached, automated purchase orders would be sent to suppliers and procurement process would start. The new system would benefit Agha’s in many different manners. To start off, as the system would be automated, the people who used to survey the section heads for stock requirements would no longer be needed (Ontario 2009). They could be taken off work and a considerable amount of saving can be achieved from this step. Secondly, automating the entire process would result in saving of a lot of time. Now the procurement manager could pay more importance to other important issues like negotiating on discounts, delivery periods and other offers. However, every change comes with a risk. Similarly, implementing the new system would bring in a couple of risks as well (Jones 1997). Firstly, people would need to be made familiar with the new system. There is a risk that not all people would know how the new system would work and might end up misusing it. The second and somewhat greater risk that Agha’s would face after would be managing the business with a lesser amount of working capital. Lesser amount of working capital because automating the entire purchase operating system would mean some of the working capital fund would temporarily be used to finance the purchase of the new system and in the meanwhile the business would need to be run with a lesser amount of working capital. Explain, with examples, the impact of e-commerce on the purchasing system identifying the advantages and disadvantages According to Ontario (2009) e-commerce refers to online purchasing and selling of products. It’s a very common term and almost all of us know what it refers to. A typical example of e-commerce is going to a computer vendor’s website, selecting a laptop that you want and paying online for it to be delivered. E- Commerce has greatly eased how businesses work. For instance, shoe store owners can now go simply online and look up for leather retailers. They can decide what they want over the internet and finalize their deal there. Such is the blessing of e-commerce that you don’t even have to leave your office/home to go out and get what you want! Another example of an electronic commerce transaction would be going on line a mobile company’s website and purchasing a cell phone online. Definitely the benefits obtained by using e-commerce have more than just outweighed its costs. Let’s just look at the shoe maker’s example. Previously shoe makers had to travel to different areas to get the kind of leather they wanted. E-Commerce has eased their problem. They can now simply go online and look for leather suppliers. They can then visit their website, see the products they are offering and then place them an order. With e-commerce everything is as simple as 1 2 3! This very simple example just goes onto show how e-commerce can be used to save on time and money. Australia (1990) makes it pretty clear that there aren’t many disadvantages associated with e-commerce but one which really sets back the tone of this trade. There are several items which need to be seen in person before you can deal with them. Products like clothing, chinaware and shoes they all need to be seen in person as one doesn’t really get to know well about them by simply checking their details online. Bibliography Top of Form JONES, D. M. (1997). Purchasing development. University of Strathclyde. Bottom of Form Top of Form AUSTRALIA. (1990). Basic purchasing skills course: pre-course reading. Canberra, Dept. of Administrative Services. Top of Form ONTARIO. MINISTRY OF SMALL BUSINESS AND CONSUMER SERVICES. (2009). E-Commerce purchasing and selling online : what you need to consider. Bottom of Form Top of Form JAMES, D. E. (2001). Buying complex systems: purchase process influences on implementation success. Thesis (Ph. D.)--University of Brighton, 2001. Bottom of Form Bottom of Form Read More